UMW’s Perodua pursuit sparks legal tussle

This article first appeared in The Edge Malaysia Weekly, on May 7, 2018 - May 13, 2018.
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UMW Holdings Bhd’s quest to control national carmaker Perusahaan Otomobil Kedua Sdn Bhd (Perodua) has developed into a complicated legal tussle among Med-Bumikar Mara Sdn Bhd shareholders.

The clash between opposing factions within Med-Bumikar centres on control of its board, resulting in two concurrent legal actions, one each from both sides.

Control of the board is crucial as it would determine how Med-Bumikar proceeds with the UMW offer to acquire its 50.07% stake in MBM Resources Bhd (MBMR).

As MBMR owns 22.58% of Perodua, UMW’s existing 38% stake in Perodua plus control of MBMR would in theory give it majority control of Perodua.

UMW has said that it intends to privatise MBMR if it gains majority control.

The conglomerate had offered RM2.56 per share or RM501 million for the 50.07% stake, but the offer had been rejected outright by Med-Bumikar’s board as undervaluing MBMR.

Med-Bumikar’s executive chairman, Datuk Abdul Rahim Abdul Halim, previously told The Edge that the net tangible asset (NTA) value of RM3.68 is a fairer price tag.

The majority of the board members are currently nominees of the faction opposing UMW’s offer, which amounts to about 48% shareholding in Med-Bumikar.

On the other side is Majlis Amanah Rakyat (Mara) and the Looi and Wong families, who collectively control 52.06% of Med-Bumikar and favour accepting UMW’s offer, while also seeking a better price.

Mara had filed a lawsuit on April 30 contesting the validity of two director appointments to Med-Bumikar’s board. At the same time, the majority faction also seeks to appoint two of its own nominees to the board.

The legal action filed by the minority faction on April 25, on the other hand, claims the affairs of the company are being conducted in a manner oppressive to their interests as minority shareholders.

The April 25 lawsuit is slated for its first hearing on May 11 in the Kuala Lumpur High Court according to the judiciary’s website, while the April 30 lawsuit is scheduled to be heard on May 14.

The outcome of the legal tussle among Med-Bumikar shareholders will determine which faction gains majority control of the board. As such, the legal battle will have a major bearing on the future of UMW’s quest for Perodua.

 

Majority faction seeks board control

On April 30, Med-Bumikar convened an extraordinary general meeting to vote on two resolutions.

The first was to accept UMW’s offer for Med-Bumikar’s majority stake in MBMR subject to unspecified conditions.

The second was to appoint Muhamad Zaki Bin Jali and Wong Fay Lee to the Med-Bumikar board.

The EGM was called by Mara, the single largest shareholder with a 29% stake.

Both resolutions were passed by a 52.06% majority, comprising Mara and the Looi and Wong families.

In a statement, Mara said the majority shareholders want the board to set up a task force committee to negotiate further with UMW.

This signals that while the majority shareholders want to accept UMW’s offer, they too want a better price.

However, after questioning the validity of the EGM, Abdul Rahim led the other shareholders in a walk-out before the voting.

Earlier, on April 25, the Kuala Lumpur High Court had dismissed an injunction application by the minority shareholders to stop the EGM.

While the EGM vote constitutes conditional acceptance of UMW’s offer, it is understood that the shareholders still need the board to execute the acceptance and to commence negotiations with UMW.

According to court documents of the April 25 lawsuit sighted by The Edge, Med-Bumikar’s board comprises seven directors and three alternate directors.

Four of the seven directors are nominees of the shareholders opposed to the UMW offer.

The list of seven directors does not include Datuk Mohd Ridzuan and Sharifuddin Shoib, whose appointments Mara is challenging.

Mara said the two directors were improperly appointed and have no basis to be appointed as they are not shareholders of Med-Bumikar.

They also “have not received the consent of the shareholders representing more than 50% of the votes of Med-Bumikar to be appointed as directors of Med-Bumikar,” said Mara.

If Mara successfully replaces Mohd Ridzuan and Sharifuddin with Zaki and Wong, the composition of the board would tilt in favour of the majority faction.

 

Minorities seek buyout

However, the minority shareholders are also pursuing a court injunction against the resolutions passed at the EGM.

In their April 25 lawsuit, the minorities are seeking a court declaration that the resolutions “unfairly discriminate” against them and a court order cancelling any transaction of the 50.07% MBMR stake to UMW at the RM2.56 offer price.

Among others, the minorities also seek a court order compelling the majority shareholders to buy them out of Med-Bumikar — subject to an independent valuation exercise of the shares’ value within two months of the date of the order.

The minorities’ lawsuit is based on eight complaints, according to Abdul Rahim’s affidavit obtained by The Edge.

In a nutshell, the complaints primarily allege that the UMW offer is too low and undervalues the MBMR stake.

They also argue that accepting the UMW offer may trigger several termination events of various agreements involving Med-Bumikar, MBMR and Perodua as well as Daihatsu Motor Co Ltd, to name a few parties.

The termination events may lead to “unnecessary legal action” against Med-Bumikar and MBMR “for breach of contract and a claim for damages”, the affidavit states.

The document says that pursuant to a joint venture agreement signed in 1993, any Perodua shareholder wishing to sell must first offer their stake to other shareholders.

Any sale of Perodua shares to a third party must be subject to prior consultation and written approval of other shareholders, it adds.

Abdul Rahim had previously told The Edge that Med-Bumikar had obtained written consent from other Perodua shareholders when it transferred the 22.58% stake to MBMR in 1999 as part of a restructuring of its businesses.

The consent had included a condition that MBMR shall remain, at all times, a related company of Med-Bumikar. The affidavit claims that if the UMW offer is accepted, Med-Bumikar would be in breach of that condition.

 

 

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